Mere Change In Arbitral Rules Does Not Frustrate Arbitration Agreement: Karnataka High Court

The Karnataka High Court Division Bench of Chief Justice Vibhu Bakru and Justice C.M. Joshi has set aside interim injunctions granted by Commercial Court by which it restrained L & T Infra Investment Partners Advisory Pvt. Ltd. (“L&T Infra”) from proceeding with arbitration under the London Court of International Arbitration (LCIA) Rules against Bhoruka Power Corporation Limited (“BPCL”) and its promoter shareholders. The Court held that when the parties have expressly chosen the LCIA Rules under the CCD Subscription and Securities Holders Agreement dated 21.06.2013 (“CCD Agreement”), they are bound by that agreement. The Commercial Court erred in interdicting the arbitration merely on the ground that the administration under the LCIA was not contemplated in the agreement. The court held that“the Rules of arbitration are clearly procedural rules and do not affect the substantive rights of the parties. The plain language of the arbitration clause indicates that the parties had agreed that on failure of resolution of disputes by consultation, pursuant to the notice, the disputes would be referred to arbitration under the rules then in effect. The same clearly means that the Rules which would be in effect at the time of reference to arbitration will be applicable.” The court also held that the commercial court's jurisdiction to entertain a suit against arbitral proceedings governed by Part I of the Arbitration Act is expressly barred under section 5 of the Arbitration Act. Background The BPCL and its promoter shareholder had filed two suits before the commercial courts seeking injunctions against LT infra from initiating arbitration under the LCIA Rules. The LT Infra had filed an arbitration request with the LCIA regarding the disputes arising from the CCD agreement. The Petitioner argued that BPCL and its promoters had filed two commercial suits seeking declarations that Article 16 of the CCD Agreement was void. They contended that the arbitration clause referred to London Court of International Arbitration India Rules then in effect had ceased to operate in 2016. Therefore, no consent existed for the arbitration administered by LCIA London. The CCD agreement did not contemplate the arbitration to be administered by LCIA or governed by LCIA Rules 2020. The commercial court agreed with the contention of the petitioner and granted injunctions against the LT infra restraining it from proceeding with the arbitration under the LCIA Rules. Aggrieved, the present appeal under section 13(1A) of the Commercial Courts Act has been filed. Contentions: The Appellant submitted that the commercial court committed an error in injuncting arbitration proceedings when the parties had expressly agreed to be governed by LCIA Rules in clause 20 of the CCD Agreement. It further contended that the LCIA Rules 2020 are merely an iteration of the agreed rules and apply automatically unless their applications are expressly excluded. It was argued that the courts must respect part autonomy and should not interfere with the arbitration forum chosen by them. Lastly, it was submitted that suits were a classic case of anti arbitration injunctions which is contrary to pro arbitration instances adopted by the Supreme Court post BALCO. Per Contra, the Respondent submitted that the CDD agreement did not provide for the arbitration to be administered by LCIA or LCIA Rules 2020 but only for arbitration in London applying Indian Law. It was further contended that the LCIA Rules 2020 were not in force at the time of execution of the CCD agreement, and therefore cannot be applied unilaterally. It was also submitted that arbitration invoked by the appellant was contrary to the pre-arbitration steps contemplated under the CCD agreement. Lastly, they relied on Enercon (India) Ltd. v. Enercon GmbH [(2014) where it was held that the court must examine the real intention of the parties and prevent inoperative arbitration clauses from being misused. Findings: The court at the outset held that as per section 5 of the Arbitration Act, it would be impermissible for the court to interfere with the arbitral proceedings except as stated in the section. Therefore, a suit to restrain an arbitration cannot be entertained under the Arbitration Act. This is because the interference in arbitral proceedings governed by part 1 of the Arbitration Act is prohibited under section 5 of the Arbitration Act. It relied on the Supreme Court's judgment in Kvaerner Cementation (2012) where it was held that the Arbitral Tribunal is empowered to rule on its own jurisdiction including any objections to the existence or validity of the arbitration agreement. The court rejected the plea that since the arbitral institution referred to in the arbitration clause had ceased to operate, the matter could not be referred to the arbitration.The fact that the Rules were amended...

Mere Change In Arbitral Rules Does Not Frustrate Arbitration Agreement: Karnataka High Court

Mohd Malik Chauhan

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